Why Capitalism Cannot be Reformed

There are many people who regard themselves as left-wing who do not want to get rid of capitalism. Not only the right-wing of the Labour party, but also some who consider themselves to socialists. They believe capitalism can be made more equal through government action & that the post-war period demonstrates this. In my opinion, they fail to appreciate the material conditions.

The post-war prosperity & the increasingly equality, exemplified in more equal access to health care & education, was possible due to a genuinely high rate of profit consequent upon the huge capital devaluation of the depression of the 1930’s, the capital destruction of WWII & huge increases in productivity thanks to the application of oil & gas. To really grasp this point requires an understanding of how capitalism works & why it is prone to crisis. This isn’t an easy subject, but it’s worth the effort.

Unlike any other historical system of production, capitalism has crises of ‘overproduction’. Too many commodities get produced relative to the commodity that acts as money, historically gold. This overproduction occurs due to credit money. Banks can create money by lending out more than they have in their vaults. People & organisations purchase commodities on credit & have debts. The system as a whole leverages. This allows aggregate prices to exceed aggregate values. Recorded profit rates are inflated by this credit money, but once debt-saturation is reached & lenders realise they may not get all their money back, panic takes hold, there’s a ‘credit-crunch’ as no-one wants to lend to anyone else, & when the defaults start they set off a chain-reaction that threatens the solvency of the financial system & capitalism itself. This is what the world experienced in 2007-08. It has been temporarily patched-up with yet more debt, this time from governments in the form of so-called ‘quantitative-easing’ (mainly buying back the government debt already sold to the financial institutions) & the purchase of other bank bad debts. If ever there was a clear example of how governments & capitalism are joined at the hip, this is it.

But this is not the full story of the current crisis. It is actually much worse than this. For behind the excessive credit/debt lies the falling rate of profit. (Remember the rate of profit is everything to capitalists – they only produce for profit, not for need. It doesn’t matter how hungry or in need of shelter you are, if you don’t have money your needs will not be met). Among Marxists the falling rate of profit theory is a source of much heated debate. In Volume III of Capital, Marx appears to be offering a basis for the economic cycle of boom & bust in the falling rate of profit consequent upon the growth in so-called ‘constant capital’ (machines, factories, raw materials & the like) being faster than the growth in labour employed (referred to as ‘variable capital’). Hence many Marxists have attempted to explain just about all of capitalism’s crises with this theory, whilst other Marxists have emphasised the role of excessive credit/debt. This is the falling rate of profit v underconsumption debate.

From what I can grasp this polarisation neglects the fact that behind the excessive issue of credit can lie the problem of the falling rate of profit. It doesn’t have to lie behind all crises & may work on a longer time basis. It may explain the Long Depression of the 1870’s, the Great Depression of the 1930’s, & today’s ongoing crisis, but not every economic downturn. This longer cycle is often referred to as the Kondratieff cycle, or as Ernest Mandel termed it a ‘wave’. Mandel’s argument was that it wasn’t a natural cycle as there could be no guarantee of an upturn, but there was a guarantee of a downturn in the form of the falling rate of profit as more constant capital replaced profit-producing labour. The upturns depended upon historical factors. The recovery in the late-Victorian era was arguably due to the introduction of railways, the telegraph, etc., & the post-war boom, as already stated, by the harnessing of the new energy sources of oil & gas & the resultant automation. There is no guarantee of a new more productive basis for today’s economy even if it were to shed its huge debt problem. It would need something like nuclear cold-fusion to stimulate productivity & so permit capitalists to steal an even greater amount of the value created by labour whilst leaving the labourer still materially better off than before (what essentially happened in the post-war period). It is unlikely.

This is why I believe we now have the material conditions for the end of capitalism. Capitalism can offer the workers nothing but repression. One way or another the workers will need to find a way to socialism. The creation of a society based upon the social/common ownership of the means of production. It is for us to offer this vision. There isn’t a single blueprint & there is not a single route. These are up for debate & discussion. But what we should be clear about is capitalism cannot be reformed. It’s time has passed.

For those who would like to learn more about crisis theory I recommend: